Tuesday, September 25, 2007

Boardroom Pay

From time to time we get Guardian commentators lambasting the government about boardroom pay - notably Polly Toynbee. The assessment of the Labour government is always, "you may have helped the poor with the minimum wage and re-distribution, but you've done nothing about the rich, how can you call yourselves Labour".

Actually the government has done something about boardroom pay. In 2002, they legislated to require that boardroom compensation data was published, and to give shareholders an annual advisory vote on executive pay. Britain was the first country to do this (since then Australia, the Netherlands and Sweden have also legislated and the USA is thinking about it, despite fierce resistance from vested interests).

The thinking behind this legislation was two-fold - by insisting on disclosure, the government hoped to bring public pressure to bear on excessive pay. Director's pay comes out of shareholders money - the shareholder vote was to give shareholders a say for the first time - previously directors simply awarded themselves pay and sat on each other's remuneration committees recommending pay-rises for each other.

Sadly, the shareholders have only bothered to defeat boardroom pay once - in 2003, GlaxoSmithKline shareholders voted down their chief executive's pay and forced a substantial reduction.

Government can give shareholders the power to protect their money being siphoned off them by greedy directors, but government can't force the shareholders to use said tools.

My guess is that many of the commentators frothing about boardroom pay and blaming the government are simply unaware of the 2002 legislation (lazy journalism). They should be targetting their wrath at the institutional shareholders who are palpably not bothering to defend the money of the pension and unit-trust holders they represent.

For instance there have been lots of articles about the pay of Northern Rock board members, but not one newspaper has bothered to track down the institutional shareholders who voted in favour of these pay packages earlier this year and ask them why they did so. I suppose they think it is easier to somehow blame the government, even though in a free country government can have little say over private sector pay that is essentially a contract entered into freely between two private individuals, the board executive and the shareholder. Government can't impose pay controls. The only answer is that shareholders start acting like grown-ups and start defending their money (as is their right under the law), instead of vacuously going along with everything and then complaining afterwards.

Sunday, September 23, 2007

People of Newcastle try to Save Their Bank

According to the Guardian,

Newcastle's morning paper, the Journal, has a campaign to replenish Northern Rock's depleted assets by persuading citizens to open accounts. Footballers, the rugby team and local entrepreneurs have all had their photographs taken signing forms. Several people who two days before were queuing to get all their money out returned to put a prudently small amount back in.

The Guardian likens it to Frank Capra's "It's a Wonderful Life", where the Jimmy Stewart character experiences the failure of his bank, and is bailed out at the end by the citizens of his town in reward for his kindnesses to them.

It turns out that Northern Rock has been kind to Newcastle. They distribute 5% of pre-tax profits to the Northern Rock Foundation, which finances all sorts of things from homes for battered women to concert halls. The foundation has received £175m from the bank in the last 10 years. Northern Rock has built up goodwill on their home turf.

It's likely that unlike in the movie, the good burghers of Newcastle won't succeed in their quest - they are too few and probably don't have the collective savings to prop up the bank. But it's heartwarming to see them try.

If they did pull it off against the odds, what a tale of community spirit this would be! It might also encourage other firms to do charity work, if the benefits of such goodwill-building are demonstrated clearly.

Thursday, September 20, 2007

Labour Trusted on the Economy

A Populus poll done for the Times, showed that 56% trust Labour on the economy compared to just 18% for the Tories.

The significant thing about this poll was that it was carried out Monday afternoon and evening, after the Chancellor's announcement that he would guarantee existing Northern Rock deposits and after the scenes on Friday and Saturday of people queueing to get their money out of Northern Rock Bank.

Tories reacted with shock to the poll. They had fondly hoped that this was Labour's "Black Wednesday" (which happened exactly 15 years ago) and had hoped it would boost their prospects. So why hasn't it?

The defining moment of the Labour government was actually the period 2001-2003. The conjunction of 9/11 and the dot.com crash created a perfect global storm. Stock markets everywhere crashed. The FTSE100 went from 6900 in Jan 2000 to about 3100 in March 2003. The USA, France, Germany, Japan and scores of other developed countries such as Italy and the Netherlands went into recession, with attending rises in unemployment. People in Britain held their breath. In the previous 50 years, everytime the USA sneezed, we caught a cold, and in the last two recessions (1981 and 1992) we suffered worse than everyone else.

Only in 2001-2003, we sailed on undisturbed by world events. The economy continued to grow and unemployment stayed low. It was a non-event as far as the economy was concerned and the public took note. You only know how good a government is by how they perform during the bad times.

The current crisis is a minor thing compared to the dot.com crash. When people ask themselves whether the Labour government can cope with crises, they think back to 2001-2003, when the govt faced a world economic crisis and passed the test. However, when they ask whether a potential Tory government would cope, they think back to the last time the Tories faced such a test, 1992, and shudder. Especially as all those old photos show David Cameron standing close behind Norman Lamont.

If the current crisis is minor compared to 2001-2003, it is even more minor compared to 1992. Britain was in recession that year. 55,000 businesses went to the wall, unemployment was rising and the budget deficit that year was a horrifying 7% of GDP. Black Wednesday came on top of all that and was the final straw.

The world economy faces potentially significant obstacles ahead, but the public believes that the Labour government will strive mightily to protect them. After a hesitant start, the Chancellor Alistair Darling has come out enhanced by the Northern Rock crisis. He showed leadership, decisiveness, pragmatism and sheer guts, when everyone else was losing their heads. It's nice to know we have a heavyweight in the Treasury.

Thursday, September 13, 2007

Gordon Brown and Mrs Thatcher

Gordon Brown had tea today at Number 10 with Mrs Thatcher. It follows the comment he made last week when he said he was a "conviction politician" and noted Thatcher was one too.

Mrs Thatcher was so pleased at this, she got her official spokesman to acknowledge the compliment in public:

She was delighted to have such flattery, as she always is from any source,” the spokesman said. “It is nice to have someone say such things about you.”

It suggests that she is still hurting from the way the Tories despatched her 17 years ago, and starving for acknowledgement. Hence her willingness to visit Gordon Brown at Number 10 and be photographed with him on the steps.

She has only visited Downing Street twice since she left office, once at the invitation of Tony Blair, and now at the invitation of Gordon Brown. John Major kept her at a distance.

Some in Labour will raise eyebrows at this, given the hurt she inflicted on the country in the early 80's. But we're comfortably in power now, and vengence isn't part of the Labour character. We can afford to be magnanimous and kind to a very old lady who is clearly still upset at events of the past. Besides, by being a radical (as opposed to a conservative), Thatcher destroyed the Tories by turning them into an ideological party. Labour is in power because of the collapse of the Tories that she set in train. The least we can do is give her tea.

UPDATE: It turns out that this whole thing was initiated by Mrs T, who wrote to Gordon Brown when he became PM, they then corresponded and he then invited her to tea. The FT reports that Downing Street offered to let her enter discreetly through the back door, but Mrs T turned the offer down preferring to enter by the front door and be photographed.

It's clear to me that she is still angry with the Tories for the way they despatched her all those years ago, and is determined to stick it to them whenever she can. And of course the Labour party assists whenever it can.... It recalls the 1995 interview she gave when she practically endorsed Tony Blair and New Labour (which influenced many former Tory voters to abstain or vote Labour).

Downing Street reports that she brought toys for Mr Brown's sons (a cement mixer and remote controlled cars). Very sweet.

Friday, September 07, 2007

Taxes on Illegal Drugs

The Americans have been experimenting with this for some time. According to this article from CNN,

In Tennessee, when you acquire an illegal drug (even "moonshine"), you have 48 hours to report to the Department of Revenue and pay your tax, in exchange for which you'll receive stamps to affix to your illegal substance. The stamps serve as evidence you paid the tax on the illegal product.

Don't worry that you might get in trouble for admitting you have enough drugs to fuel a rave party for years. You need not provide identification to get the stamps and it's illegal for revenue employees to rat you out.

Still, next door in North Carolina, which has had a similar law for 15 years, only 79 folks have voluntarily come forward since 1990, according to the Department of Revenue. Most were thought to be stamp collectors, or perhaps just high. Another 72,000 were taxed after they were already busted.

North Carolina has collected $78.3 million thus far, almost all from those arrested and found without stamps.

North Carolina's population is only 9 million, so that's not a bad tax haul. 23 American states now have this law. I think we should consider doing the same but add a twist and outsource this as with parking tickets - I'm sure so many people would get busted they would think it better not to do drugs at all, and the drug-busting units would be self-financing and maybe even revenue contributors. And it would be funny watching the Daily Mail trying to argue against this tax.

Saturday, September 01, 2007

School Meals

Luke Akehurst has an excellent piece about the take up of school meals in London.

He highlights some very interesting data - for instance the entitlement to free school meals in England is 16% but in London it is 26%. Even more surprising is the fact that entitlement to school meals in Kensington and Chelsea, that Tory bastion, is a whopping 39%. In a recent study by Barclays, the average income in Kensington and Chelsea was £100,000, the highest in the country. I can only conclude that there are a few people earning several million and cancelling out those on income support, job seekers allowance or earning under £15k (the criteria for being eligible for free school meals).

City of London was second in the Barclays study with an average income of £81,425 - their free school meal entitlement is 24%. Westminster was third in the Barclays study with an average income of £77,500 - their free school meal entitlement was 36%.

What on earth is going on? How can these places top the league for average income, yet have a free school meal entitement of double the national average. Even if you account for the rich sending their children to private school, surely there is a bulwark of earners between £18k and £40k sending their children to state schools? House prices are expensive in Kensington and Chelsea and Westminster (about £1 million each), so it is probable that the ordinary middle classes/aspirant working classes, who are the bedrock of the rest of England, are simply absent from these boroughs and only the very rich and the very poor live there.

Luke's piece contains full stats for each London borough, together with the full criteria for claiming school meals - to read it click here.

Britain fights back US criticisms on our handling of Southern Iraq

In recent weeks, the Americans, upset that we are intent on pulling out of Iraq, have been rubbishing us, with anonymous US generals talking about "Who lost Basra?" One senior US intelligence man said anonymously that 'The British have basically been defeated in the south' and another that if there are further British withdrawals 'the situation will continue to deteriorate'.

All of which is infuriating to the British. For a start we didn't have much say in the strategy for Iraq war and post-war situation. Bremner disbanded the Iraqi army without consulting us, and when we advised that Abu Ghraib be shut down in April 2003, the Americans ignored our advice, with disastrous consequences.

The American criticism is a classic Bush/Cheney operation - accuse the opposition of failure and/or cowardice to make them back down - in this case they are trying to pressure Britain not to continue withdrawals from Iraq.

It might have worked with Blair, who refused to criticise publicly or allow anyone from his administration to criticise publicly. But the Brown administration is different from the Blair one. Yesterday, David Miliband and Des Browne wrote an article in the Washington Post, refuting the American allegations and saying "It's time to set the record straight".

We have also had General Sir Mike Jackson saying "I don't think that's a fair assessment" to American allegations of "deterioration" in Basra. He also said that the Americans were "intellectually bankrupt" over their Iraqi strategy.

It looks like this public refutation of the allegations is having an effect. Bush has now said that he is "fine" about the handover to Iraqi forces in Basra. I guess he realised that having Brits hit back at him publicly was more damaging to him than having them leave Basra.

The text of the Miliband/Browne article is interesting. It concludes:

We believe we remain on track to complete the return of full sovereignty to the Iraqi people as planned.

.........But while outsiders can support, advise and encourage, only Iraqi leaders can make the political decisions and compromises essential to the future of their country.

.........We urge Iraq's political leaders to take the necessary steps.

To me that sounds like a clear sign that Britain is going to continue to handover and continue to withdraw no matter what the Americans say.